Let to Buy mortgage: some questions answered
What is a Let to Buy mortgage?
Let to Buy is the process in which you rent out your residential property and buy a new property to live in. You will essentially have two mortgages; your old home will be converted into a Buy to Let mortgage while you take out a new residential mortgage on your new home.
It can be a popular option among couples who want to buy a home together but don’t necessarily want to give up their own homes.
Is Let to Buy right for me?
Let to Buy can be a good option if you are wanting to move and don’t want to sell your current property or are in a hurry to move. If you plan on moving back into the original property eventually and are moving away for some time it could also be a good option for you.
You will need to convert your mortgage on the property you want to rent out to a Buy to Let or ask for consent to let. Rates can be higher and some lenders can even charge you fees for the switch.
You will be committing to two different mortgages that will run alongside each other, keep this in mind as well as the fees that are involved when switching your existing home mortgage over to a Let to Buy deal.
What are the lending criteria for a Let to Buy mortgage?
You need to ensure that your credit history is in order and that you do not have any debts owed. There are age limits on Let to Buy mortgages, if you are younger than 25 or older than 75 then the options are very limited.
You will need to get a valuation of the property you wish to rent out as your mortgage when switching to Buy to Let will be based upon the amount of estimated rental income. Usually you will need proof that you are buying a second property too.
There is typically a borrowing limit of 75-80% of the value of your current property, this doesn’t take into account equity that could be released. You will need to prove to your lenders that your rental income will be higher than your mortgage repayments too.
The lending criteria is different from lender to lender so it is important to check what a lender wants from you before approaching them for a mortgage deal.
What happens if I can’t switch?
If you cannot turn your mortgage into a Buy to Let and are struggling to sell your home then you could move into rental accommodation whilst seeking consent to let. As someone with a residential mortgage on a property you cannot just rent out the property without the lender’s permission.
You could also opt to get something called a second charge mortgage. This is basically getting another mortgage on top of your existing property to raise revenue without having to remortgage. It can unlock equity to put towards a new property or a bigger deposit.
What about Buy to Let stamp duty charges?
The extra costs that come with Buy to Lets can be expensive which is why you need to factor these in when considering if it is the correct option for you. In 2016 the government introduced stamp duty charges on second properties. You must now pay an additional 3% stamp duty surcharge.
If you sell your first initial property within three years of purchasing a different property HMRC will refund this surcharge in full.
What are the drawbacks of Let to Buy?
You will obviously be responsible for two mortgages which is quite a commitment to make, if you miss any repayments on either mortgage then your properties could end up repossessed. You will find that there are a lot of charges and fees involved in obtaining a Let to Buy mortgage. The mortgage rates on Let to Buy are not as low as those on residential mortgages as there is more risk involved.
Investing in two properties can be rewarding but can also be devastating if house prices can fall. It is important to keep an eye on the mortgage market if investing in property is something you are interested in.
How can a Mortgage Broker at What Life & Mortgages help me?
It can be hard to make the right decision especially when you already have a plan to move and rent out your current property in your head. Here at What Life & Mortgages we will listen to your needs and specific circumstances before advising on the right options for you. There are many different types of mortgages and interest rates out there and finding the right fit for you can be stressful.
There are a lot of lenders who offer Buy to Let mortgage products that are not authorised and regulated by the Financial Conduct Authority but here at What Life & Mortgages we are; we have the qualifications to offer you expect financial services and advice when it comes to your mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
The Financial Conduct Authority does not regulate most Buy to Let Mortgages
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.